Thursday, February 2, 2012

Why Negative Interest Rates Will Send The Precious Metals Complex Straight Up

There has been a tug of war since 2008.

The bankers and the government have done everything universally possible to create the illusion of a banking world that is solvent. They have also rescued the stock market- truly making it the investment of last resort.

If the stock market fails- America fails. I am not kidding, it is that serious. If the banking world gets exposed then all bets are off.

Often, I will read the anti-gold class state something like gold "does not pay a dividend." The implication is that the stock market and the bond market offer better returns. Is this true?

The answer is no given a negative interest rate environment like the one we have now. A negative interest rate environment occurs when inflation is outstripping yield or dividend returns. It works like this. Suppose you can make 3% yield on treasuries or a 4% dividend in equities. That rate of return looks ok when it is stacked up against a 1% inflation rate. You are still getting "plus money." However, if the real inflation rate is closer to 11% rather than the government rigged numbers supplied by the BLS each month, you are now receiving a negative return of -7 or -8%. The following chart is courtesy of shadowstats- something you can trust because the government does not generate it. Note the huge divergence between their numbers and the BLS numbers.




Therefore- you are guaranteed a loss not to mention that your capital is at risk of loss, default, or conversion. Only a math challenged sucker would invest there. Let the buyer beware. Remember MF Global.

Negative interest rates become the perfect environment for gold or silver to thrive in. You are guaranteed two things. Your investment in gold, silver, or platinum has an inverse relationship to negative returns. You may not get paid dividends but you preserve buying power- you lose nothing. Precious metals match or outstrip inflation. You do not have your capital at risk. There is no way for the government or bankers to counterfeit precious metals or steal them from you as long as you own and POSSESS the physical metal. By possess, I do not mean in a bank where Congress can pass a bill overnight and seize every safe deposit box like they did in 1933. In fact, that seizure violated the Fourth Amendment which has always caused me to scratch my head. (Why didn't the entire world sue the government?) Fiat promoters hate precious metals. Precious metals are a fiat currency put. A short. Plain and simple.

Can the government tax the hell out of gold and silver or confiscate it? Sure. But by that time, anarchy will be here in full force and nobody is gonna want worthless currency. Other than food, ammo, and water- precious meals make the most sense. From now until then. Whenever then is.

There is no Deus Ex Machina ending. There is no miracle cure. All debts are paid. Either by the debtor or by the lender. That includes that 16.4 trillion they just rung up.

If I had to pick a side- and we all do- I land on precious metals. Ultimately, PM's will win the tug of war in a world filled with deceit and fraudulent numbers. At some point, the truth will escape and once that Genie is out of the bottle...I'm not sure sellers of precious metals will even take currency.

1 comment:

Mark said...

Well said - I did a piece a recently on real interest rates and gold: http://seekingalpha.com/article/289717-identifying-the-end-of-the-gold-bull